The International Energy Agency is “sounding the alarm bell” over gas supplies next year, warning European leaders not to become complacent following the recent fall in prices and urging them to take immediate action to ensure supplies for next winter.
Fatih Birol, head of the IEA, said on Thursday that while Europe had successfully filled storage sites to 95 per cent ahead of the winter months, the agency forecast a significant shortfall for next year, with Russian supplies expected to remain largely cut off.
“The fact that this winter may not be as challenging as we feared a couple of months ago does not justify complacency for next winter,” Birol said.
“There is a looming risk . . . We think gas markets will still be tight and volatile. This is an alarm bell for next winter as we believe we need to take immediate action now to avoid a shortage next year.”
Birol said the IEA’s analysis suggested that at this time next year, storage facilities in Europe may only be 65 per cent full given the challenges in refilling them from next spring.
He said the IEA expected there would be a shortfall in supplies of about 30bn cubic metres as, unlike in 2022, Russian exports were likely to be close to zero from the beginning of the year. In 2022, Russian supplies flowed not too far below normal levels in the first six months of the year, before Moscow openly slashed exports in June in retaliation for western government’s support for Ukraine.
Birol said there might also be greater challenges in securing enough supplies of liquefied natural gas in 2023, which has been Europe’s main replacement for Russian exports.
China, the world’s largest importer of LNG, is expected to post improved economic growth and may well reverse the decline of about 20 per cent in LNG imports seen this year, the IEA said.
Growth in LNG supplies is expected to be about half the normal rate in 2023, which may leave Europe struggling to access enough cargoes if Chinese demand rebounds, Birol said.
The IEA is calling on European governments to take measures now including speeding up energy conservation investments, renewables, and plans for home insulation, and the switchover to heat pumps to cut gas demand.
The agency, which is largely funded by OECD members to advise on energy security, is set to release an updated 10-point plan for governments in the coming weeks.
“Europe will have about a 30 bcm supply and demand gap next summer — this is a serious challenge for European energy markets and the European economy,” Birol said.
“We want to put this on the table and bring it to the attention of European leaders.”
European gas prices have declined since spiking to an all-time peak above €300 per megawatt hour in August to about €130 on Thursday. But that level remains well above the long-term average of €20 to €30.
Prices have declined as storage sites have reached capacity and as a mild autumn has delayed the start of the heating season, when gas demand is at its highest.
Birol said Europe may still receive some “bruises” this winter from high prices while the potential for shortages in certain geographies has not been eliminated.